1. A drawback of forecasting using spreadsheets is that typical spreadsheet programs are not equipped to deal with the circularity involving interest expense and debt. A. false
2. All else equal, increasing the assumed payables period in a financial forecast will decrease external funding required. A. true
3. An annual financial forecast for 2013 showing no external funding required assures a company that no cash shortfalls are likely to occur during 2013 A. false
4. Assume each month has 30 days and AmDocs has a 60-day accounts receivable period. During the second calendar quarter of the year (April, May, and June), AmDocs will collect payment for the sales it made during which of the months listed below? A. February, March, and April
5. Cash budgets are less informative than pro forma financial statements. A. true
6. Given the same assumptions, cash flow forecasts and pro forma projections will yield the same need for external funding. A. true
7. In the above financial statements, Royal Corporation has prepared (incomplete) pro forma financial statements for 2014, based on actual financial statements for 2013. Royal Corp. used the percent-of-sales method assuming a sales growth rate of 10% for 2014. If capital expenditures are planned to be $1,615 in 2014, then what would be the appropriate projection for net fixed assets in 2014? A. $4,563
8. On May 1, Vaya Corp. had a beginning cash balance of $175. Vaya’s sales for April were $420 and May sales were $480. During May, the firm had cash expenses of $110 and made payments on accounts payable of $290. aya collect 50% for the month of sales and 50% for the month following the month of sales. What is the firm’s beginning cash balance on the end of May? A. $225
9. Oscar’s Incredible Eatery ($ Thousands)
Income statement for the year ending Dec 31 2014
Net sales 17,300
Costs of goods sold 10,600
Depreciation 3,250
EDIT 3,450
Interest expenses 680
EBT 2,770
Tax 910
Earning after tax (or NI) 1,860
Dividends 460
Balance Sheet as of Dec 31 2014
Cash 350
Accounts payable 1,920
Accounts receivable 940
Long-term debt 3500
Inventory 2,360
Common stock
The 7,500
Total current assets 3,650
Retained Earnings 1,580
Net Fixed assets 14,500
Total Liab & Equity 14,500
Please refer to Oscar’s financial statements above. What was Oscar’s increase in retained earnings during 2014? A. $1,400
10. Please refer to Oscar’s financial statements above. All of Oscar’s costs and current asset accounts vary directly with sales. Sales are projected to increase by 10 percent. What is the pro forma accounts receivable balance for next year? A. $1,034
11. Please refer to Oscar’s financial statements above. Assume a constant profit margin and dividend payout ratio, and further assume all of Oscar’s assets and current liabilities vary directly with sales. Assume long-term debt and common stock remain unchanged. Sales are projected to increase by 10 percent. What is Oscar’s external financing need for next year? A. -$282
12. Please refer to Oscar’s financial statements above. Assume a constant debt-equity ratio, net profit margin and dividend payout ratio, and further assume all of Oscar’s expenses, assets and current liabilities vary directly with sales. What is the pro forma net fixed asset value for next year if sales are projected to increase by 7.5 percent? A. $11,663.75
13. Please refer to Oscar’s financial statements above. Sales are projected to increase by 5 percent next year. The profit margin and the dividend payout ratio are projected to remain constant. What is the projected addition to retained earnings for next year? A. $1,470.00
14. Please refer to the pro forma financial statements for Royal Corporation above. If Royal Corporation plans to issue $100 in new equity in 2014, what should be the projection for shareholders’ equity for 2014? A. $5,349
15. Please refer to the pro forma financial statements for Royal Corporation above. Assume that net fixed assets are projected to be 5,000 for 2014 and that shareholders’ equity is projected to be 5,500 for 2014. If long-term debt is the plug figure, what should be the projection for long-term debt for Royal Corporation in 2014? A. $2,847
16. Ruff Wear expects sales of $560, $650, $670, and $610 for the months of May through August, respectively. The firm collects 20 percent of sales in the month of sale, 70 percent in the month following the month of sale, and 8 percent in the second month following the month of sale. The remaining 2 percent of sales is never collected. How much money does the firm expect to collect in the month of August? A. $643
17. Scenario analysis involves changing one input to a financial forecast, whereas sensitivity analysis involves changing multiple inputs. A. false
18. Steve has estimated the cash inflows and outflows for his sporting goods store for next year. The report that he has prepared summarizing these cash flows is called A. cash budget.
19. The Limited collects 25 percent of sales in the month of sale, 60 percent of sales in the month following the month of sale, and 15 percent of sales in the second month following the month of sale. During the month of April, the firm will collect: A. 60 percent of March sales.
20. The most common approach to developing pro forma financial statements is called the: A. percent-of-sales method.
21. To estimate Missed Places Inc.’s (MP) external financing needs, the CFO needs to figure out how much equity her firm will have at the end of next year. At the end of the most recent fiscal year, MP’s retained earnings were $158,000. The Controller has estimated that over the next year, gross profits will be $360,700, earnings after tax will total $23,400, and MP will pay $12,400 in dividends. What are the estimated retained earnings at the end of next year? A. $169,000
22. Which of the following are viable techniques to cope with the uncertainty inherent in realistic financial projections?
financial projections?
I. Simulation
II. Ad hoc adjustments
III. Scenario analysis
IV. Sensitivity analysis A. E. I, III, and IV only
23. Which of the following statements is correct if a firm’s pro forma financial statements project net income of $12,000 and external financing required of $5,000? A. Retained earnings cannot grow by more than $12,000.
24. Which one of the following statements is correct concerning the cash balance of a firm? A. A cumulative cash deficit on a cash budget indicates the need to acquire additional funds.
25. You are developing a financial plan for a corporation. Which of the following questions will be considered as you develop this plan?
I. How much will our sales grow?
II. Will additional fixed assets be required?
III. Will dividends be paid to shareholders?
IV. How much new debt must be obtained? A. E. I, II, III, and IV
26. You are estimating your company’s external financing needs for the next year. At the end of the year you expect that owners’ equity will be $80 million, total assets will amount to $170 million, and total liabilities will be $70 million. How much will your firm need to borrow, or otherwise acquire, from outside sources during the year? A. $20 million
27. You are preparing pro forma financial statements for 2014 using the percent-of-sales method. Sales were $100,000 in 2013 and are projected to be $132,000 in 2014. Net income was $5,000 in 2013 and is projected to be $6,000 in 2014. Equity was $45,000 at year-end 2012 and $47,500 at year-end 2013. Assuming that this company never issues new equity, never repurchases equity, and never changes its dividend payout ratio, what would be projected for equity at year-end 2014? A. $50,500
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